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Consumer Reports Background Checks

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					                                                            FTC FACTS for Business
           FOR THE CONSUMER
                                       www.ftc.gov
                                                                  Using Consumer Reports:
BUSINESS
            FEDERAL TRADE COMMISSION




                                                            What Employers Need To Know
                                        1-877-FTC-HELP




                                                                                   Credit



                                                          • Your advertisement for cashiers        • You are considering a number of
                                                            nets 100 applications. You want          your long-term employees for major
                                                            credit reports on each applicant.        promotions. Can you check their
                                                            You plan to eliminate those with         credit reports to ensure that only
                                                            poor credit histories. What are          financially responsible individuals
                                                            your obligations?                        are considered?


                                                                          • A job candidate has authorized you to
                                                                            obtain a credit report. The applicant has
                                                                            a poor credit history. Although the credit
                                                                            history is considered a negative factor,
                                                                            it’s the applicant’s lack of relevant
                                                                            experience that’s more important to you.
                                                                            You turn down the application. What
                                                                            procedures must you follow?




                                                         A
                                                                     s an employer, you may use consumer reports when you hire new

                                                                     employees and when you evaluate employees for promotion, reas-

                                                                     signment, and retention — as long as you comply with the Fair

                                                         Credit Reporting Act (FCRA). Sections 604, 606, and 615 of the FCRA spell

                                                         out your responsibilities when using consumer reports for employment pur-

                                                         poses.
   Facts for Business

The FCRA is designed primarily to protect the       cation. A reference verified by the employer is
privacy of consumer report information and to       not covered by the Act; a reference verified by
guarantee that the information supplied by          an employment or reference checking agency
consumer reporting agencies is as accurate as       (or other CRA) is covered. Section 603(o)
possible. Amendments to the FCRA — which            provides special procedures for reference
went into effect September 30, 1997 — signifi-      checking; otherwise, checking references may
cantly increase the legal obligations of employ-    constitute an investigative consumer report
ers who use consumer reports. Congress ex-          subject to additional FCRA requirements.
panded employer responsibilities because of
concern that inaccurate or incomplete consumer      Key Provisions of the FCRA
reports could cause applicants to be denied jobs    Amendments
or cause employees to be denied promotions
unjustly. The amendments ensure (1) that            Written Notice and Authorization.
individuals are aware that consumer reports         Before you can get a consumer report for
may be used for employment purposes and             employment purposes, you must notify the
agree to such use, and (2) that individuals are     individual in writing — in a document consist-
notified promptly if information in a consumer      ing solely of this notice — that a report may be
report may result in a negative employment          used. You also must get the person’s written
decision.                                           authorization before you ask a CRA for the
                                                    report. (Special procedures apply to the truck-
                                                    ing industry.)
What is a Consumer Report?
A consumer report contains information about        Adverse Action Procedures.
your personal and credit characteristics, charac-   If you rely on a consumer report for an “ad-
ter, general reputation, and lifestyle. To be       verse action” — denying a job application,
covered by the FCRA, a report must be pre-          reassigning or terminating an employee, or
pared by a consumer reporting agency (CRA)          denying a promotion — be aware that:
— a business that assembles such reports for
other businesses.                                      Step 1: Before you take the adverse action,
                                                       you must give the individual a pre-adverse
Employers often do background checks on                action disclosure that includes a copy of
applicants and get consumer reports during             the individual’s consumer report and a copy
their employment. Some employers only want             of “A Summary of Your Rights Under the
an applicant’s or employee’s credit payment            Fair Credit Reporting Act” — a document
records; others want driving records and crimi-        prescribed by the Federal Trade Commis-
nal histories. For sensitive positions, it’s not       sion (FTC). The CRA that furnishes the
unusual for employers to order investigative           individual’s report will give you the sum-
consumer reports — reports that include inter-         mary of consumer rights.
views with an applicant’s or employee’s                Step 2: After you’ve taken an adverse
friends, neighbors, and associates. All of these       action, you must give the individual notice
types of reports are consumer reports if they          — orally, in writing, or electronically —
are obtained from a CRA.                               that the action has been taken in an adverse
                                                       action notice. It must include:
Applicants are often asked to give references.          • the name, address, and phone number
Whether verifying such references is covered              of the CRA that supplied the report;
by the FCRA depends on who does the verifi-
                                                                     Facts for Business

    • a statement that the CRA that supplied        eliminate those with poor credit histories. What
      the report did not make the decision to       are your obligations?
      take the adverse action and cannot give
      specific reasons for it; and                   • You can get credit reports — one type of
    • a notice of the individual’s right to            consumer report — if you notify each
      dispute the accuracy or completeness of          applicant in writing that a credit report may
      any information the agency furnished,            be requested and if you receive the
      and his or her right to an additional free       applicant’s written consent. Before you
      consumer report from the agency upon             reject an applicant based on credit report
      request within 60 days.                          information, you must make a pre-adverse
                                                       action disclosure that includes a copy of
                                                       the credit report and the summary of con-
Certifications to Consumer Reporting                   sumer rights under the FCRA. Once you’ve
Agencies.                                              rejected an applicant, you must provide an
Before giving you an individual’s consumer             adverse action notice if credit report
report, the CRA will require you to certify that       information affected your decision.
you are in compliance with the FCRA and that
you will not misuse any information in the
report in violation of federal or state equal       You are considering a number of your long-
employment opportunity laws or regulations.         term employees for a major promotion. You
                                                    want to check their consumer reports to ensure
In 1998, Congress amended the FCRA to               that only responsible individuals are considered
provide special procedures for mail, telephone,     for the position. What are your obligations?
or electronic employment applications in the
trucking industry. Employers do not need to          • You cannot get consumer reports unless the
                                                       employees have been notified that reports
make written disclosures and obtain written
                                                       may be obtained and have given their
permission in the case of applicants who will be
                                                       written permission. If the employees gave
subject to state or federal regulation as truck-
                                                       you written permission in the past, you
ers. Finally, no pre-adverse action disclosure or
                                                       need only make sure that the employees
Section 615(a) disclosure is required. Instead,
                                                       receive or have received a “separate docu-
the employer must, within three days of the            ment” notice that reports may be obtained
decision, provide an oral, written, or electronic      during the course of their employment —
adverse action disclosure consisting of: (1) a         no more notice or permission is required. If
statement that an adverse action has been taken        your employees have not received notice
based on a consumer report; (2) the name,              and given you permission, you must notify
address, and telephone number of the CRA; (3)          the employees and get their written permis-
a statement that the CRA did not make the              sion before you get their reports.
decision; and (4) a statement that the consumer
                                                       In each case where information in the report
may obtain a copy of the actual report from the
                                                       influences your decision to deny promotion,
employer if he or she provides identification.
                                                       you must provide the employee with a pre-
                                                       adverse action disclosure. The employee
In Practice...                                         also must receive an adverse action notice
You advertise vacancies for cashiers and re-           once you have selected another individual
ceive 100 applications. You want just credit           for the job.
reports on each applicant because you plan to
    Facts for Business

A job applicant gives you the okay to get a           provide pre-adverse action disclosures and
consumer report. Although the credit history is       adverse action notices to unsuccessful job
poor and that’s a negative factor, the                applicants. The FCRA allows individuals to sue
applicant’s lack of relevant experience carries       employers for damages in federal court. A
more weight in your decision not to hire.             person who successfully sues is entitled to
What’s your responsibility?                           recover court costs and reasonable legal fees.
                                                      The law also allows individuals to seek punitive
 • In any case where information in a con-            damages for deliberate violations. In addition,
   sumer report is a factor in your decision —        the Federal Trade Commission, other federal
   even if the report information is not a major      agencies, and the states may sue employers for
   consideration — you must follow the proce-         noncompliance and obtain civil penalties.
   dures mandated by the FCRA. In this case,
   you would be required to provide the               For More Information
   applicant a pre-adverse action disclosure
   before you reject his or her application.          For your copy of the FCRA, contact the FTC.
   When you formally reject the applicant, you        The FTC works for the consumer to prevent
   would be required to provide an adverse            fraudulent, deceptive, and unfair business
   action notice.                                     practices in the marketplace and to provide
                                                      information to help consumers spot, stop, and
The applicants for a sensitive financial position     avoid them. To file a complaint or to get free
have authorized you to obtain credit reports.         information on consumer issues, visit
You reject one applicant, whose credit report         www.ftc.gov or call toll-free, 1-877-FTC-
shows a debt load that may be too high for the        HELP (1-877-382-4357); TTY: 1-866-653-
proposed salary, even though the report shows         4261. The FTC enters Internet, telemarketing,
a good repayment history. You turn down               identity theft, and other fraud-related com-
another, whose credit report shows only one           plaints into Consumer Sentinel, a secure, online
credit account, because you want someone who          database available to hundreds of civil and
has shown more financial responsibility. Are          criminal law enforcement agencies in the U.S.
you obliged to provide any notices to these           and abroad.
applicants?
                                                      Your Opportunity to Comment
 • Both applicants are entitled to a pre-ad-          The National Small Business Ombudsman and
   verse action disclosure and an adverse             10 Regional Fairness Boards collect comments
   action notice. If any information in the           from small businesses about federal compliance
   credit report influences an adverse decision,      and enforcement activities. Each year, the
   the applicant is entitled to the notices —         Ombudsman evaluates the conduct of these
   even when the information isn’t negative.          activities and rates each agency’s responsive-
                                                      ness to small businesses. Small businesses can
Non-compliance                                        comment to the Ombudsman without fear of
There are legal consequences for employers            reprisal. To comment, call toll-free 1-888-
who fail to get an applicant’s permission before      REGFAIR (1-888-734-3247) or go to
requesting a consumer report or who fail to           www.sba.gov/ombudsman.

                                FEDERAL TRADE C OMMISSION FOR THE C ONSUMER
                                    1-877-FTC-HELP          www.ftc.gov

                                    Federal Trade Commission
                                     Bureau of Consumer Protection
                              Office of Consumer and Business Education
                                               March 1999

				
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